Bond credit rating agency Moody’s has revised its outlook for the life insurance industry in Japan, changing it from stable to negative.
The ratings change reflects the agency’s forecasts that the life insurance sector’s credit profile over 12 to 18 months will be under pressure from a persistent ultra-low interest rate environment due to the negative investment rate policy imposed by the Bank of Japan in February 2016.
While Japanese insurers have demonstrated that they can adapt to low interest rates, the current situation for yields, especially in the long end of the curve, is expected to lead to the broad downward revision of return assumptions for new investments. This could lead to changes in business and product strategies that may negatively affect insurers’ sales, as well as their underwriting and sales capacities.
However, Moody’s pointed out that the sharp drop in market interest rates brought about by the negative interest rate policy will only have a limited impact on insurers’ businesses over the next 12 to 18 months. Instead, the negative outlook is due to potential reactions from the industry, as it anticipates a prolonged period of ultra-low interest rates.
The impact on insurers’ profits will not be felt immediately, but economic metrics will show future decline, warned the ratings firm.
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